Apr. 9, 2013
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Many taxpayers turn to tax software to help them prepare their taxes.

by Matt Krantz, USA TODAY

by Matt Krantz, USA TODAY

Taxes aren't most people's idea of a good time. That means when it comes to getting them done, the main goal is usually keeping the pain to a minimum.

Reducing the pain factor of the annual ritual of doing taxes is the top job of a battery of tax-preparation software programs. The big dogs of the do-it-yourself tax world, Intuit's TurboTax, H&R Block At Home and TaxAct, make big promises that they can help maximize refunds, save time and save money opposed to hiring an accountant.

That may all be true, yet each of these software packages comes with a morass of complications, including convoluted pricing, a confusing array of different versions and lofty fees to electronically file state returns. With April 15 looming, the options for consumers looking to use their computers to file are dwindling.

Taking the time to understand tax-preparation software, though, can bring consumers huge savings. Rather than paying $400 or more to hire an accountant to put together a tax return, most consumers can easily use software to whip out their own. Here are a few key rules of thumb:

â?¢ Understanding whether to use software or the websites. The biggest decision people must make when using tax-prep software doesn't have anything to do with 1099s or W-2s. The decision is whether to use the software or the Web version of the products.

TurboTax, H&R Block At Home and TaxAct all run either as software on your computer or on their websites. Which one is best is largely a personal decision, as the basic functions of the software installed on the computer are nearly identical to the Web-based offerings. The decision is important as it will determine the price, how many returns can be filed and on what types of devices consumers can work.

Taxpayers who use the online versions for tax prep benefit from the convenience. There's no software to install and no worries about saving the data on your computer hard drive. Plus, the tax information can be accessed from any computer or mobile device that can run an Internet browser. Roughly 75% of TurboTax customers use the online products, says Intuit's Bob Meighan.

On the other hand, taxpayers who download the software gain control over their data. These users can work on their taxes on a computer even if it's not connected to the Internet and can keep the data file stored safely on their hard drive. With TurboTax, taxpayers get more control in that they can call up electronic copies of the IRS documents and edit them. Generally, the downloaded software works out to be the best value for anyone who is preparing other returns, such as family members, in addition to their own. Most retailers also run pretty big discounts on the software in the stores.

â?¢ Mind the costs. Tax-preparation costs typically come in well below $100 for most taxpayers, including all the add-on costs including state calculation modules and e-filing. But the fees can vary widely and can be a big consideration for taxpayers where price is the most important consideration. Nearly all the tax-preparation providers offer a free Web tax-preparation system. But when using the free options, expect just the basics. The free online services for TurboTax, H&R Block and TaxAct each let you prepare a federal tax return and file it electronically with the IRS.

But taxpayers looking for more convenience, such as the ability to import data from last year's return, will need to pony up some money. TaxAct is the leader when it comes to pricing. The Deluxe Federal Edition of TaxAct costs $12.95, and it allows you to import the previous year's TaxAct data.

TurboTax offers four premium online versions, including Basic for $34.99 up to Home & Business for $99.99. Paying more gives consumers a bit more guidance in filing out their returns as well as the ability to store last year's returns online on Intuit's servers. The best value is likely to buy the software on disk in a store. TurboTax also offers four products that range in price from $69.99 to $159.99, but they all include state filing, which the online versions charge extra for.

Generally, H&R Block At Home and TurboTax are priced very similarly. Some higher-price offerings might be worthwhile, especially if a taxpayer's return is complicated. H&R Block, for instance, has a $99.95 offering. That premium service not only includes the top version of the software, but the fee also includes the ability to have the return looked over by an H&R Block tax professional. Consumers who buy this package also get assigned a tax professional to work with if there's an audit.

â?¢ Beware of the state filing costs. All the tax-preparation software programs offer free federal filing, knowing that the real money is to be made with the state filing. It's critical to consider the additional costs associated to get access to the modules of the software and websites to prepare state returns. There's also an extra cost to electronically file the state returns.

For instance, a typical user of TurboTax may opt for TurboTax Online Deluxe for $49.99. But the cost for the state module is $39.99, bringing the total cost to $89.98. Consumers can get the state module for free if they buy TurboTax Deluxe on disk for $69.99. But there's an additional fee of $19.99 to file the state return electronically. Cost-conscious consumers can avoid the $19.99 filing fee by just printing the return and paying about $2 for stamps.

Using TaxAct Ultimate Bundle, the total cost is $19.95, which includes electronic filing for federal and state returns. Meanwhile, H&R Block Deluxe costs $49.95, and the $39.95 cost for a state return brings the total cost to $89.90.

â?¢ Consider personal taste. Given all the variables in individual tax situations, it's often a matter of taste and situation that will determine which product will be best. TurboTax is the market leader, and the interface is pretty slick. But TaxAct is one of the few to offer a downloadable free product that can be installed.

While the options are plentiful, the good thing is that it doesn't cost anything to try any of them. It's not a bad idea to test drive the software programs' online versions to see which one suits you best.

H&R Block comes at the design as a tax company, not a software-development firm, giving it a different feel, says Sandee Astrachan, lead product manager at H&R Block.

The bottom line is, despite the overly complicated web of versions and fees, doing your own taxes using software is very possible and will save money.

"People don't have to pay a lot to do their taxes," says TaxAct spokeswoman Jessi Dolmage.